The mortgage industry is gearing up for a familiar fight. The Department of Housing and Urban Development (HUD) has once again included a proposal in its 2008 budget to increase the mortgage insurance premium (MIP) on most Federal Housing Administration (FHA) multifamily programs.

The proposal to raise the MIP 16 points, from 45 to 61 basis points, exempts nursing homes and hospitals this year. Affected programs include the agency’s flagship Sec. 221(d)(4) program.

Last year, HUD proposed raising the MIP 32 basis points, and the Office of Management and Budget justified the hike by saying it would generate $150 million more annually.

But the backlash from the mortgage industry was swift and strong. Many feared the increase would damage the FHA’s programs by making them far less competitive. The proposal was defeated after 121 members of Congress signed a letter asking for the increase not to be imposed.

FHA-affiliated lenders again fear that should this year’s increase go through, it would eat into an already shrinking volume of FHA multifamily loans. “The new construction program is one of their best, but we’ve got high construction costs and interest rates going up,” said Mark Dellonte, president of Love Financing. “If they increase the MIP, it’s going to make these deals unfeasible.”

The Mortgage Bankers Association (MBA) is again lobbying against the proposed increase. If the FHA adds 16 basis points to its existing 45, “you get to the point where maybe a conduit deal is almost as attractive, and it’s a lot more timely execution,” said Cheryl Malloy, the MBA’s senior vice president, multifamily and governance. “We think a huge percentage of the business, about 40 percent, either won’t get done or will go to a conduit.”

Both the MBA and the National Multi Housing Council (NMHC) are optimistic that the increase will be defeated this year. At press time, the MBA had gathered signatures of 38 senators and 117 members of the House of Representatives opposing the increase, and sent the petition to HUD Secretary Alphonso Jackson July 31.

Still, uncertainty about whether the increase will be implemented is another reason some developers avoid FHA. “If you’re a developer, are you going to bet a $10 [million] or $20 million dollar deal on it?” said David Cardwell, the NMHC’s vice president of capital markets. “I don’t think so.”